Supreme Court holds 'industrial alcohol' is 'intoxicating liquor', can be taxed by States

The Supreme Court on Wednesday held that 'industrial alcohol' comes within the meaning of 'intoxicating liquor' under Entry 8 of List II (State List) of the Constitution and hence, States can regulate and tax the same [State of Uttar Pradesh and ors v Lalta Prasad Vaish].

A nine-judge Constitution Bench of Chief Justice of India (CJI) DY Chandrachud with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih delivered its ruling today.

The majority on the Bench ruled that the meaning of intoxicating liquor under Entry 8 of the State List is beyond the narrow definition of alcoholic beverages or potable alcohol and includes all kinds of alcohol which can adversely affect public health.

"Alcoholic liquor and intoxicating liquor are used for consumption but the entry of intoxicating liquor stretches to its manufacturing etc. Alcoholic liquor is defined by the ingredient and 'intoxicating' is defined by effect. Thus, alcoholic liquor can be covered by the latter if it causes intoxication. The public interest purpose is evident from the construct and evolution of the entry," the Court explained.

The question before the Bench was whether States could regulate industrial alcohol/denatured spirits by way of Entry 8 which confers powers on the State to deal with intoxicating liquors.

On the other hand, Entry 52 of the Union List empowers the Central government to regulate those industries which have been declared by parliament to be of public interest.

The Court acknowledged that there can be an overlap between the two entries and the way out is to reconcile the two entries to see that neither are rendered redundant.

The Court said that legislative lists must be given a wide interpretation.

Hence, it proceeded to hold that intoxicating liquor under Entry 8 cannot be restricted to potable alcohol.

It also overruled a 1990 judgment in Synthetics & Chemicals Ltd. v. State of Uttar Pradesh which had said that “intoxicating liquor” refers only to potable alcohol and that States cannot tax industrial alcohol.

The Court today held that the meaning of the phrase intoxicating liquor includes all alcohol that can be used to harm public health and not just potable alcohol.

"Entry 8 of List II cannot be used to exclude raw materials that go into the production of intoxicating liquor," the Court held.

Justice Nagarathna delivered a separate dissenting judgment.

By way of background, in October 2007, the Supreme Court in State of UP v Lalta Prasad Vaish noted that the 1990 decision in the Synthetic & Chemicals case had ignored a 1956 five-judge Bench decision in Ch. Tika Ramji v State of Uttar Pradesh.

The matter was, thus, referred to a nine-judge Constitution Bench on December 8, 2010.

During hearings, the States argued that the power to tax industrial alcohol is vital in the post-GST indirect tax regime and to monitor public health.

Solicitor General Tushar Mehta with advocate Kanu Agrawal appeared for the Union government.